Wednesday, April 25, 2012

Champions League Revenue - The Final Countdown

Chelsea’s remarkable triumph over Barcelona in last night’s
Champions League semi-final was a surprise, but no more than their old
fashioned, backs to the wall display deserved. They might not have played the
prettiest football, but the result made it all worthwhile in the end, as they
could book their tickets to Munich for a sumptuous final against either Real
Madrid or Bayern Munich. You can’t put a price on nights like that.

Well, actually you can, as we are now in a position to
estimate the impact on Chelsea’s Champions League revenue compared to last
season. In fact, we can now work out the increases (or decreases) in revenue
for all the English clubs in Europe with a reasonable degree of accuracy.

First, we need to understand how revenue is distributed
among the clubs competing in the Champions League. UEFA negotiate various TV
and sponsorship deals that contribute to a pot of around €1.1 billion to be
distributed to teams competing in the Champions League and Europa League –
after reserving around a fifth to cover their own costs and make “solidarity”
payments to associations, leagues and clubs.

The pot made available for the clubs is divided into two
parts: (a) prize money based on participation and results; (b) TV (market)
pool.

Prize Money – Champions League

The above table lists the participation fees and prize money
payable to the 32 teams that qualify for the Champions League group stages.
Right off the bat, each team is awarded €3.9 million for participation plus
another €550,000 per match played in the group phase, regardless of the result.
Assuming that a club fulfills its six group fixtures (a fairly safe
assumption), that’s worth €3.3 million. This means that each team is guaranteed
€7.2 million for qualifying for the group stage, even if it loses every single
game.

There is also a performance bonus of €800,000 for each
victory in the group stage plus €400,000 for a draw. So if a team really puts
its pedal to the metal and manages to win all six of their group matches, it
will get €4.8 million. If a team qualifies for the first knock-out round (the
last 16), they are awarded a further €3 million.

There are additional performance prizes for each further
stage reached: quarter-final €3.3 million, semi-final €4.2 million, final €5.6
million and winners €9 million. So if you go all the way and win the damn
thing, you would earn a total of €31.5 million (not counting the TV pool share),
which is serious money in anybody’s language.

"UEFA's Michel Platini - Hammer Time"

Prize Money – Europe League

The principle is the same in the Europa League, though the
sums involved are considerably smaller. Each of the 48 clubs involved in the
group stages receives a participation bonus of €640,000 plus €60,000 for each
match played in the group, giving a total of €1 million. In addition, there is
€140,000 for each win and €70,000 for each draw in the group stage.

Turning to the knock-out stages, clubs competing in the
round of 32 will receive €200,000 each, clubs in the last 16 €300,000, the
quarter-finalists €400,000 and the semi-finalists €700,000. The Europa League
winners will collect €3 million and the runners-up €2 million. The winning club
could therefore receive a maximum of €6.4 million (around 20% of the Champions
League).

TV Pool

In addition to these fixed sums, the clubs receive a share
of the television money from the TV (market) pool, which is allocated according
to a number of variables. First, the total amount available in the pool depends
on the size/value of a country’s TV market, so the amount allocated to teams in
England is more than that given to, say, Spain, as English television generates
more revenue.

Clubs can also potentially do better if fewer representatives
from their country reach the group stage, as the available money is divided
between fewer clubs. This tends to benefit clubs from smaller countries, e.g.
in 2010/11 Panathinaikos received €14.4 million from the TV pool, as Greece
only had one qualifier, which was much more than the €9.7 million that Lyon
received, as the French TV pool was divided between three clubs.

"Pep Guardiola - can't win them all"

OK, in the case of the English clubs in the Champions
League, the allocation works as follows:

(a) Half depends on the position that the club finished in
the previous season’s Premier League with the team finishing first receiving
40%, the team finishing second 30%, third 20% and fourth 10%.

(b) Half depends on the progress in the current season’s
Champions League, which is based on the number of games played, starting from
the group stages.

In other words, success has a direct impact on the amount of
money received. Qualifying for the Champions League in fourth place is
obviously beneficial, but that team would not receive as much as the teams
finishing above it based on the above algorithm.

Of course, fourth place has other unhappy implications, as
there is potential for an awkward qualifying match at an inconvenient stage of
the club’s preparation (like Arsenal having to play Udinese this season). This
season could actually be even worse, if Chelsea win the Champions League, as
this would guarantee them qualification into next season’s competition. They
would take the place of the team finishing fourth in the Premier League, which
would then be bumped into the Europa League.

TV Pool – Allocation

Let’s see the result of these factors on the allocation of
this season’s TV pool, taking Chelsea as the example, which seems only fair, as
they have progressed furthest. We shall assume that the size of the English TV
pool remains unchanged from last season at €84 million.

Chelsea finished second in the 2010/11 Premier League, so
they receive 30% of the half allocated to this element, meaning 30% of €42
million, giving €12.6 million. Including the final, they will play a total of
13 games in this season’s Champions League, which works out to 39% of the total
33 games played by the four English clubs, generating another €16.5 million.
They have benefited here from the early exits of the other English clubs with
the two Manchester sides going out at the group stage and Arsenal being
defeated by Milan in the last 16. In total, that gives Chelsea €29.1 million
from the TV pool (€12.6 million plus €16.5 million).

This is €2.1 million more than the €27.0 million they
received from the TV pool in the 2010/11 season. This might seem like a
relatively small increment, given that the Blues only reached the
quarter-finals last year, but this is due to the way the money is allocated. In
particular, Chelsea won the 2009/10 Premier League, so they received 40% of the
half of the TV pool based on the previous season’s Premier League finish, as
opposed to 30% this season. In other words, they receive €4.2 million less this
season for this element (€12.6 million minus €16.8 million), which offsets the
additional €6.3 million (€16.5 million minus €10.2 million) from progress in
the Champions League.

This factor is not very well understood among the football
public, but it can have a significant impact on Champions League revenue. If we
look at Arsenal, yes, they qualified for Europe’s flagship tournament this
season, but their fourth place was only worth €4.2 million, which is a quarter
of the €16.2 million that Manchester United received for their first place in
the Premier League.

Similarly, progress in the actual tournament is very
worthwhile, not just for the obvious higher prize money, but also the impact
that it has on the TV pool allocation. For example, both United and City did
not get out of their group this season, so received €7.6 million, while Arsenal
got €2.6 million more (€10.2 million) for reaching the last 16.

Prize Money – Allocation

The allocation of the prize money is thankfully a bit
simpler. This season, Chelsea will receive at least €26.5 million, which is
made up of €7.2 million participation, €3.2 million from the group stage (3
wins at €800,000 plus 2 draws at €400,000), €3 million for the last 16, €3.3
million for the quarter-final, €4.2 for the semi-final and €5.6 million for the
final (with the conservative assumption that their injury-ravaged team finish
runners-up).

Total Money

So, Chelsea’s total revenue for the 2011/12 Champions League
will be at least €55.6 million, comprising €26.5 million prize money and €29.1
million TV pool. That is €11.1 million higher than last season’s €44.5 million,
when they exited the competition at the quarter-final stage.

Of course, if they actually win the final, they would
receive €9 million prize money instead of the assumed €5.6 million, increasing
their total money by €3.4 million (€9 million less €5.6 million) to €59.0
million, €14.5 million higher than last season.

In Sterling terms, Chelsea will receive £46.4 million (if
they finish runners-up) or £49.2 million (if they win the final). That would be
either £9.3 million or £12.1 million more than last season.

Exchange rates obviously play a part in the Sterling sum
received by the club, but I have assumed a constant rate of €1.20 to the Pound
for the sake of simplicity.

Other Clubs

Let’s look at how the other English clubs have fared in
revenue terms compared to the previous season:

Manchester United – down £14.0 million. Although they
received a minor uplift (€2 million) from being parachuted into the Europa
League, this was nowhere near enough to compensate for the difference in the
Champions League (did not get out of the group compared to reaching the final
last season).

Manchester City – up £18.2 million. Qualified for the
Champions League instead of the Europa League.

Arsenal – down £1.8 million. Virtually unchanged, as they
were knocked-out in the last 16 both seasons. Only difference comes from the
market pool.

Tottenham – down £22.2 million, as they only qualified for
the Europa League, as opposed to the Champions League in 2010/11.

Stoke City – up £4.2 million. Reached the last 32 of the
Europa League.

Birmingham City – up £3.7 million. Qualified for the Europa
League, but did not get out of the group.

Fulham – up £3.7 million. Qualified for the Europa League,
but did not get out of the group.

Liverpool – down £5.1 million. Did not qualify for Europe,
but reached the last 16 of the Europa League the previous season.

My one caveat here is that the TV pool allocations for the
Europa League have been estimated based on previous seasons, so will not be
completely accurate.

"Sir Alex Ferguson - Mind over Money"

Other Factors

In addition to the TV money analysed above, clubs will also
benefit from additional gate receipts from staging European matches. Chelsea
will receive money from UEFA for the final, but this amount is unspecified.

Finally, participation and progress in the Champions League
should boost a club’s sponsorship revenue, both in the short term through
contractual bonuses, and longer term by strengthening the club’s brand
attractiveness through increased exposure and profile.

However, this is difficult to quantify, as a former Barcelona
vice-president admitted, “What is harder to put into figures is the impact it
has on your brand. That is very difficult to discern. There is no doubt we got
a massive boost from winning the competition. We were on television and on the
front of all newspapers all around the world, but that increased exposure and
interest doesn’t lead to an immediate increase in the value of your sponsorship
deals.”

There is no doubt that competing in the Champions League
makes a big difference financially, especially as the equitable nature of the
distribution methodology for TV money in England means that there is not a huge
difference between Premier League payments to the leading clubs.

In other words, whatever the size of the increases and
decreases compared to last season, it should not be forgotten that all English
clubs playing in the Champions League still have a considerable financial
advantage over the rest of the Premier League, as can be seen by the above
analysis of TV revenue.

Nevertheless, Chelsea and Manchester City will surely enjoy
their additional funds from this season’s Champions league, while Manchester
United and Tottenham will have to cope with reduced revenue. All part of the
fun and games aboard UEFA’s Trans-Europe Express.

it's around 86.5 million for english clubs,56 mil for italians with 4 cl places(it has now come down as they have only 3 cl places now),50 mil for spanish,48 mil for germans with 3 cl places,18 mil for french.very little for other countries.

If Chelsea win the Champions League but finish outside the top 4 in the EPL, what percentage of the TV pool money would they receive for the 2012/2013 Champions League? Would they get 10%, as 4th place would not qualify for the CL, or would they receive more and the top 3 teams in the EPL get less than the 40/30/20% they normally do?

What I found really interesting was the 22.2m loss Tottenham are staring at. It highlights the pitfalls for wanna-be clubs trying to break into the elite competition. If they can't achieve consistency in qualification in subsequent seasons, not only will they get hit with loss of CL revenue, but also bear the additional expense of any squad investment they may have made in order to compete at the highest level.

Is that how it is or am I missing something?

P.S. I'm having some problems posting comments from my browser so apologise if you got this more than once.

Very interesting article. Appreciate having this sophisticated financial analysis of football here. I don't know anyone else who occupys this niche.

I didn't know how equal the allocations are in the premier league, which means champions league money matters more there. I know Spain has very unequal distribution, would be interesting to find out about the other countries, like Germany or Italy.

The other interesting thing is how big a boost Tottenham got from their champions league performance last year. Hope they used the money well, considering the drop to this year.

Great blog, thanks for making the time for it. Regarding Chelsea, given they are making this revenue now but assuming they miss the CL for next year, what impact is that likely to have on their balance sheet and could that potentially put them in trouble with the financial laws or will this great run be enough to cover a season without CL?

Would be interesting to look at it from a German perspective for a couple of reasons as well.

Currently 3 teams but going to four next year, so what impact will that have.

The explosive growth of revenue from Schalke and BVB (would be nice to see how the CL and domestic league success as expanded their revenue) as a result of a bit more consistency, marketing etc.

Plus the new German/SKY TV deal that will add more revenue to the league.

Fantastic stuff as always. is there any chance you could shine your spotlight on what has been going on at rangers over the last couple of years. A lack of clarity over the couple of years prior to whyte's takeover makes it kind of hard to follow.

A bit late, but one small correction: the participation boni are for group stage participation, so teams that parachute out of CL after group stage (ie ManU and ManCity) will not get the 1 mio EL participation bonus.

@Chris, @arsenaldepot: According the Guardian the amounts do change on the basis of Chelsea qualifying as winners. http://www.guardian.co.uk/football/2012/may/22/chelsea-manchester-city-uefa. So Man City and Chelsea will get 30% each, Man U 25% and Arsenal 15%. In other words, everybody else loses out "a little" because Chelsea won the cup.

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